ACA May Encourage Self-Employment

The Patient Protection and Affordable Care Act (ACA) may encourage self-employment, according to a report issued by the Federal Reserve Bank of Kansas City. The report examined a Massachusetts state health reform law’s apparent bolstering effect on state self-employment rates and suggests that the ACA may have similar consequences. The authors submit that increased access to affordable insurance makes people less reliant on outside employers for insurance coverage, allowing them to work on their own.

Self-employment. Self-employment in the U.S. has declined over the past 30 years. One possible factor in the decline is the lack of access to the affordable health insurance that is frequently provided by other employers. In 2012, for example, 64 percent of the self-employed had private or public health insurance coverage, while 84 percent of private sector employees worked for employers that offered health insurance options.

Study. To determine whether increased access to affordable health insurance would affect self-employment rates, the report focused on the state of Massachusetts, where the Massachusetts Health Care Reform Act was signed into law in 2006. Like the ACA, the state health reform law involved a Health Insurance Exchange, an individual mandate, an employer mandate, Medicaid expansion, and prohibitions against discrimination based on pre-existing conditions and gender. The authors reviewed data from the Census Bureau’s Annual Social and Economic Supplement (ASEC), comparing Massachusetts residents’ answers prior to state health reform, from 2000 to 2005 (pre-reform), to their answers after state health reform, from 2008 to 2012 (post-reform). It then compared the Massachusetts residents’ responses to those from residents of the remaining Northeastern states and the U.S. as a whole.

Results. The report highlighted a number of findings:

• While the national working-age uninsurance rate rose from 20 to 21 percent between 2006 and 2012, the Massachusetts rate dropped 9 percentage points, from 14 percent to 5 percent. The uninsured rate in other northeastern states declined by only 1 percent.
• Among the self-employed, the national uninsurance rate increased from 31 percent pre-reform to 36 percent post-reform, and by two percentage point in other northeastern states. In Massachusetts, however, the self-employed uninsured rate decreased by 10 percentage points, from 20 percent to 10 percent.
• Among the Massachusetts self-employed, there was a slight shift in the composition of insurance policies, with a 3 percent decrease in policies held by the self-employed and a 3 percent increase in policies in which they were dependents. In addition, Medicaid enrollment among the self-employed increased by 12 percent.
• The national rate of self-employment decreased from 6 percent in the 2004 to 2006 period to 5.4 percent in the 2010 to 2012 period; the rate among other northeastern states decreased from 5.4 percent to 4.9 percent. In Massachusetts, however, the rate remained flat at 5.8 percent.

These findings suggest that the increased access to health care provided by health reform has a beneficial effect on self-employment, decreasing uninsurance among the self-employed population and causing fewer members to leave to find other employment. At the very least, the authors note that health reform does not seem to discourage self-employment.

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